Source: Sharecast
The bank said the update shows a potential mismatch developing between consensus like-for-like sales and a more muted spending environment. "This more cautious view prevents us arguing for further multiples expansion at Tesco/Next after their justifiable year-to-date rerating," it said.
Jefferies downgraded both Tesco and Next to ‘hold’ from ‘buy’ but lifted the price targets to 450p from 440p and to 1,400p from 1,300p, respectively. Sainsbury’s was kept at ‘hold’ but its price target increased to 330p from 300p.
As far as Associated British Foods is concerned, Jefferies said it sees "more pressing concerns", with Primark's challenges likely to continue. As a result, it downgraded the shares to ‘underperform’ from ‘hold’ and cut the price target to 1,800p from 2,000p.
Marks & Spencer remains the bank’s key pick, rated at ‘buy’, although it cut the price target to 400p from 440p.
Jefferies pointed out that M&S is now its "lone buy", as it continues to see the high-quality food business and ample self-help opportunities in Fashion, Home & Beauty unrewarded at a current less than 10x 26/27 price-to-earnings.
"We think the easy Spring/Summer comp structure and upcoming proof of cyberattack recovery will mean a divorce in earnings growth between MKS versus other UK retailers that will begin to drive relative multiple through the next year," it said.
At 0835 GMT, M&S shares were up 0.7% at 320.46p, Tesco was down 1.1% at 435.90p, Next was 0.4% lower at 13,320p and Sainsbury's was down 0.2% at 322.40p. AB Foods was off 1.7% at 2,050p.